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Advanced Financial Accounting: Chapter 4 Group Reporting III: Consolidation under IAS 27 Tan & Lee Chapter 41© 2009.

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Presentation on theme: "Advanced Financial Accounting: Chapter 4 Group Reporting III: Consolidation under IAS 27 Tan & Lee Chapter 41© 2009."— Presentation transcript:

1 Advanced Financial Accounting: Chapter 4 Group Reporting III: Consolidation under IAS 27 Tan & Lee Chapter 41© 2009

2 Learning Objectives 1.Understand the principles underlying elimination of intragroup balances and transactions; 2.Understand the rationale for consolidation adjustments to opening retained earnings (RE); 3.Appreciate the significance of upstream vs downstream sales & the impact on non-controlling interests (NCI); and 4.Pass the appropriate consolidation adjustments to eliminate unrealized profit or loss from transfers of fixed assets and inventory. Tan & Lee Chapter 42© 2009

3 Content Tan & Lee Chapter 4© Elimination of intragroup transactions and balances 2.Elimination of realized intragroup transactions 3.Elimination of intragroup balances 4.Adjustment of unrealized profit or loss arising from intercompany transfers 5.Impact on non-controlling interests arising from adjustments of unrealized profit or loss 6.Special considerations for intercompany transfers of fixed assets 7.Special accounting considerations when intragroup transfers are made at a loss 1. Elimination of intragroup transactions and balances

4 Elimination of Intragroup Transactions and Balances Operational and financial interdependencies within the group entities –Lead to intragroup transactions and balances Intragroup transactions include: –Buying or selling of inventory; –Transferring of long lived assets; –Rendering or procuring of services; and –Providing financing among the companies within the group Transfer of assets within the group usually includes a profit margin: –Risks and rewards of ownership of assets remain in the group –Profit is unrealized until the asset is sold to a 3 rd party –The time lag between purchase and resale of assets results in overstatement/understatement of group profit/loss and assets Tan & Lee Chapter 4© 20094

5 Elimination of Intragroup Transactions and Balances Intragroup balances arise from unsettled balances of intragroup transactions –E.g. Loan receivable/ payable to or from group companies, Dividend receivable/payable, Accounts receivable/payable to or from group companies From an economic perspective, an entity is not able to transact with itself –All intra-group transactions and balances are to be eliminated during consolidation –Elimination adjustments are made in relation to the original entries passed in the separate financial statements Tan & Lee Chapter 4© 20095

6 Principles Governing Elimination Outstanding balances due to or from companies within a group are eliminated Transactions in the income statement between the group companies are eliminated Unrealized profit or loss included in assets are eliminated in full (both parent’s & NCI’s share) Tax effects on unrealized profit or loss included in assets should be adjusted according to IAS 12 Income Taxes Balances with associates (“significant influence”) are not eliminated –Associates are not part of the group Tan & Lee Chapter 4© 20096

7 Content Tan & Lee Chapter 4© Elimination of intragroup transactions and balances 2.Elimination of realized intragroup transactions 3.Elimination of intragroup balances 4.Adjustment of unrealized profit or loss arising from intercompany transfers 5.Impact on non-controlling interests arising from adjustments of unrealized profit or loss 6.Special considerations for intercompany transfers of fixed assets 7.Special accounting considerations when intragroup transfers are made at a loss 2. Elimination of realized intragroup transactions

8 Elimination of Realized Intragroup Transactions “Offsetting” effect on the group’s net profit from realized transactions –Profit recorded by the selling company offsets the expense recorded by the buying company –However, elimination is still required to avoid overstatement of individual line items Examples: 1.Transactions relating to interest: –No time lag in the recognizing of interest by borrower and lender –Interest income exactly offsets the interest expense –Elimination entry: Tan & Lee Chapter 4© DrInterest Income CrInterest Expense

9 Elimination of Realized Intragroup Transactions 2. Transactions relating to services provided –Provision and consumption of services are simultaneous –Transactions are recorded in the same period by both parties –Elimination entry: 3. Transfers of inventories that are resold to 3 rd party in the same period –Profit recorded by selling company offsets the higher cost of sale recorded by buying company –Elimination entry: Tan & Lee Chapter 4© DrService Income CrService Expense DrSales CrCost of Sales

10 Content Tan & Lee Chapter 4© Elimination of intragroup transactions and balances 2.Elimination of realized intragroup transactions 3.Elimination of intragroup balances 4.Adjustment of unrealized profit or loss arising from intercompany transfers 5.Impact on non-controlling interests arising from adjustments of unrealized profit or loss 6.Special considerations for intercompany transfers of fixed assets 7.Special accounting considerations when intragroup transfers are made at a loss 3. Elimination of intragroup balances

11 Prior to Elimination Reconciliation is carried out when the balances recorded in both companies differ Usually, reconciling items are due to: Tan & Lee Chapter 4© ProblemsReconciliation adjustments In-transit items (recorded by only one company) Either adjusted out or recognized in a manner consistent with the other party’s treatment Errors and omissions Correct the error or pass entry to record the omitted entry Dispute on the transaction Either recognized by the disputing party or adjusted out by the party that recorded the items in books

12 Reconciliation Tan & Lee Chapter 4© Reconciliation of balances between Sub A and Sub B$ Amount owing by B in A’s book as at 31 December 20X540,000 Less: Items in A’s book but not in B’s books: Disputed (note 1)(1,500) Goods received on 29 December 20X5 (note 2) (3,200) Repair for goods not under warranty (note 3)(300) Less: payment made in December 20X5 by B not recorded by A (note 4)(17,000) Amount owing to A in B’s book as at 31 December 20X518,000 Reconciliation of intercompany balances

13 Reconciliation Note 1: Either Sub A had to reverse the sale or Sub B had to accrue for the invoice Note 2: Since goods were received before the year end, Sub B had to record the inventory Note 3: Since repairs were not covered under warranty, Sub B had to record the repair costs Note 4: Follow –up action is necessary to ascertain the reason for the non-clearance. If the cheque is lost, Sub B is required to reverse the payment entry DrInventory3,200 CrPayable to A3,200 DrRepair costs300 CrPayable to A300 DrBank17,000 CrPayable to A17,000 Tan & Lee Chapter 413© 2009

14 Content Tan & Lee Chapter 4© Elimination of intragroup transactions and balances 2.Elimination of realized intragroup transactions 3.Elimination of intragroup balances 4.Adjustment of unrealized profit or loss arising from intercompany transfers 5.Impact on non-controlling interests arising from adjustments of unrealized profit or loss 6.Special considerations for intercompany transfers of fixed assets 7.Special accounting considerations when intragroup transfers are made at a loss 4. Adjustment of unrealized profit or loss arising from intercompany transfers

15 Intragroup Transfers of Inventory and Fixed Assets Unrealized profit and loss in asset (arising from intragroup transaction) should be eliminated in full If the transferred asset is an inventory: –It should be carried at original cost and not the transferred price –Adjustments are made to: Eliminate the profit element Recognize profit only when the inventory is sold to 3 rd party If the transferred asset is a fixed asset: –The asset should be carried at original cost less accumulated depreciation –Subsequent depreciation is based on original cost and not the transferred price Tan & Lee Chapter 4©

16 Adjustment to Opening Retained Earnings (RE) When a transaction is recognized by a legal entity in one period and by the economic entity in another period –Consolidation adjustments are passed through opening RE –Consolidated opening RE should be the same as the consolidated closing RE of the previous period The summation of the opening RE of the legal entities in the group will not be equal to the consolidated Opening RE –Consolidated adjustments that have a “one-sided effect” on RE (i.e. elimination adjustments are not fully offsetting) must be re-enacted to opening RE of the next period –E.g. Unrealized profit from intragroup balances in the previous year are adjusted against opening RE in the subsequent year Tan & Lee Chapter 4©

17 Adjustments to Eliminate Unrealized Profit Tan & Lee Chapter 4© In the current period: DrSales CrCost of sales CrInventory In the following period (if unsold): DrOpening RE CrInventory In the following period (if sold): DrOpening RE CrCost of sales Inter- company sales is reversed (1)Eliminate realized cost of sales (2)Reverse unrealized cost of sales Unsold % x Unrealized profit Remove unrealized profit in inventory Adjust cost of sales from transfer price to original cost Assuming no NCI effect

18 Tax Effects on Adjustments to Eliminate Unrealized Profit (Loss) Consolidated tax expense must reflect the tax effects of the consolidated profit before tax (assuming no NCI) When unrealized profit is eliminated: –Profit is taxable for the legal entity but not the economic entity –A deferred tax asset arises (i.e. in the form of a prepaid tax) –Consolidation adjustment: –The tax expense is recognized when the asset is sold to 3 rd party Tan & Lee Chapter 4© In the current period: DrDeferred tax asset CrTax expense In the following period (if unsold): DrDeferred tax asset CrOpening RE In the following period (if sold): DrOpening RE CrTax expense

19 Illustration 1: Upstream Sale S is a wholly owned subsidiary of P On 1 April 20X1, S sold inventory costing $7,000 to its P for $10,000 On 5 Jan 20X2, P sold the inventory to external party for $15,000 Tax rate was 20%. Year-end is 31 Dec 20X1 Q1 What are the consolidation journal entries as at YE 31 Dec 20X1 ? DrSales (S’s I/S)10,000 CrCost of sales (S’s I/S)7,000 CrInventory (P’s B/S)3,000 This entry is to reduce current year profits and overstatement of inventory for the unrealized profit of $3,000 DrDeferred tax asset (Group B/s)600 (3,000 * 20%) CrTax expense (S’s I/S)600 Tax effects of profit adjustment Tan & Lee Chapter 419© 2009

20 Illustration 1: Upstream Sale Q2: What are the consolidation entries as at 31 Dec 20X2? DrOpening RE (S’s B/S)3,000 CrCost of sales (P’s B/S)3,000 This entry is to reduce previous year profit through opening RE and recognize profit in the current year when the inventory is sold to a 3 rd party DrTax expense (group’s I/S)600 CrOpening RE600 Since the profit is realized in this year, the tax expense should be recognized in the group’s income statement in the current year Or DrDeferred tax asset600 CrOpening RE600 DrTax expense600 CrDeferred tax asset600 Tan & Lee Chapter 420© 2009

21 Content Tan & Lee Chapter 4© Elimination of intragroup transactions and balances 2.Elimination of realized intragroup transactions 3.Elimination of intragroup balances 4.Adjustment of unrealized profit or loss arising from intercompany transfers 5.Impact on non-controlling interests arising from adjustments of unrealized profit or loss 6.Special considerations for intercompany transfers of fixed assets 7.Special accounting considerations when intragroup transfers are made at a loss 5. Impact on non-controlling interests arising from adjustments of unrealized profit or loss

22 Downstream Sale Tan & Lee Chapter 4© Parent Subsidiary 90 % owned Sales were made from parent to subsidiary Unrealized profit resides in Parent’s book In downstream sale, NCI’s share of profit of the subsidiary is not affected because the adjustment affects the parent’s profit not the subsidiary

23 Upstream Sale Tan & Lee Chapter 4© Parent Subsidiary 90 % owned Sales were made from subsidiary to parent Unrealized profit resides in Subsidiary’s book In upstream sale, the unrealized profit resides in the subsidiary. Thus, NCI’s share of the unrealized profit or loss needs to be adjusted from the carrying amount of the asset (IAS 27 Para 21)

24 Illustration 2: Upstream and Downstream Sales P invested in 70% of shares of S Intercompany transfers of inventory are as follows: Tax rate: 20% Net profit after tax of S: $800,000 (31 Dec 20X3) $900,000 (31 Dec 20X4) Tan & Lee Chapter 4© X320X4 Sale of inventory from P to S Original cost of inventory Gross profit Percentage unsold to 3 rd party at year end $60,000 $(50,000) $10,000 10%4% Sale of inventory from S to P Original cost of inventory Gross profit Percentage unsold to 3 rd party at year end $200,000 $(170,000) $30,000 30%0%

25 Illustration 2: Upstream and Downstream Sales 31 Dec 20X3 1)Eliminate intercompany sales and adjust unrealized profit in inventory Tan & Lee Chapter 4© DrSales60,000 CrCost of sales59,000 CrInventory1,000 (Elimination of intercompany sales and adjustment of unrealized profit from downstream sale) Unrealized profit x percentage unsold DrSales200,000 CrCost of sales191,000 CrInventory9,000 (Elimination of intercompany sales and adjustment of unrealized profit from upstream sale)

26 Illustration 2: Upstream and Downstream Sales 2) Adjust the tax effects on unrealized profit Tan & Lee Chapter 4© DrDeferred tax asset200 CrTax expense200 (Elimination of intercompany sales and adjustment of unrealized profit from downstream sale) Unrealized profit from unsold inventory x 20% DrDeferred tax asset1,800 CrTax expense1,800 (Adjustment for tax effects on unrealized profit in inventory from upstream sale)

27 Illustration 2: Upstream and Downstream Sales 3) Allocate share of current profit and RE to NCI Tan & Lee Chapter 4© * Note: No adjustment is required for the unrealized profit from downstream sale as profit resides in parent income DrIncome to NCI237,840 CrNCI237,840 Net profit after tax of S *800,000 Less: Unrealized profit from upstream sale(9,000) Add: Tax on unrealized profit 1,800 Adjusted profit 792,800 NCI’s share (30%)237,840

28 Illustration 2: Upstream and Downstream Sales 31 Dec 20X4 1) Adjust opening RE and adjust unrealized profit in inventory Tan & Lee Chapter 4© DrOpening RE1,000 CrCost of sales600 CrInventory400 (Adjustment of unrealized profit in RE from downstream sale in 31 Dec 20X3) DrOpening RE6,300 DrNCI2,700 CrCost of sales9,000 (Adjustment of unrealized profit in RE from upstream sale in 31 Dec 20X3) Need to adjust NCI’s share of unrealized profit from upstream sale

29 Illustration 2: Upstream and Downstream Sales 2)Adjust the tax effect Tan & Lee Chapter 4© DrTax expense120 DrDeferred tax asset80 CrOpening RE200 (Adjustment for tax effects on unrealized profit from downstream sale in RE) DrTax expense1,800 CrOpening RE1,260 CrNCI540 (Adjustment for tax effects on unrealized profit in inventory from upstream sale)

30 Illustration 2: Upstream and Downstream Sales Tan & Lee Chapter 4© ) Allocate share of current profit and RE to NCI DrIncome to NCI272,160 CrNCI272,160 Net profit after tax of S *900,000 Add: Unrealized profit from upstream sale9,000 Less: Tax on unrealized profit (1,800) Adjusted profit907,200 NCI share (30%)272,160 * Note: Adjustments to current year profit: 1) Realized profit & tax from prior years is added back 2) Unrealized profit & tax from unsold inventory in current year is deducted (none in this year)

31 Content Tan & Lee Chapter 4© Elimination of intragroup transactions and balances 2.Elimination of realized intragroup transactions 3.Elimination of intragroup balances 4.Adjustment of unrealized profit or loss arising from intercompany transfers 5.Impact on non-controlling interests arising from adjustments of unrealized profit or loss 6.Special considerations for intercompany transfers of fixed assets 7.Special accounting considerations when intragroup transfers are made at a loss 6. Special considerations for intercompany transfers of fixed assets

32 Transfers of Fixed Assets When fixed assets (FA) are transferred at a marked-up price –The unrealized profit must be eliminated from the carrying amount of FA –It is as though the transfer did not take place from the group’s perspective Tan & Lee Chapter 4© Acc. Dep. NBV Original cost Before Transfer After Transfer Transfer price Mark up $40,000 + Acc. Dep. NBV Profit on sale

33 Adjustments of Transfers of Fixed Assets Tan & Lee Chapter 4© Restate the FA carrying amount to the NBV at the point of transfer 2.Profit on sale of FA is adjusted out of : Consolidated income statement if sale occurred in the same period Opening RE if sale occurred in the previous period 3. Subsequent depreciation is based on original cost of asset & estimated useful life (including revision of estimate) The difference between the old and new depreciation is adjusted to: Consolidated income statement for current year Opening RE for prior year accumulated depreciation

34 Adjustments of Transfers of Fixed Assets Tan & Lee Chapter 4© The profit or loss on transfer of FA is realized through the higher or lower depreciation charge subsequently 5.Tax effect must be adjusted on the unrealized profit and subsequent corrections of depreciation

35 Impact on NCI When an Unrealized Profit Arises from an Intragroup Transfer of FA Downstream sales: –No impact on NCI Upstream sales: –NCI is adjusted for: Unrealized profit on sale of FA Correction of over/under-depreciation Tax effect on unrealized profit Tax effect on correction of over/under-depreciation Tan & Lee Chapter 4©

36 Illustration 3: Downstream Transfer of Fixed Assets 1 Jan 20X2: P sold equipment to S for $360,000 The original cost of the equipment was $400,000 The remaining useful life was 10 years from the original purchase date The remaining useful life is 8 years from the date of transfer Assume a tax rate of 20% Tan & Lee Chapter 4© Status QuoWith sale Amount to be restored/adjusted Cost of asset Acc. Dep Current Dep Profit on sale $400,000 $120,000 40,000 - $360,000 $45,000 45,000 $40,000 $75,000 5,000 $40,000

37 Illustration 3: Downstream Transfer of Fixed Assets Tan & Lee Chapter 4© CJE 1: Adjustment of unrealized profit DrEquipment (S)40,000 DrProfit on Sale (P)40,000 CrAccumulated depreciation (S)80, Dec 20X2 Reversal of these entries: In P’s Books DrCash360,000 DrAcc. dep80,000 CrEquipment400,000 CrProfit on sale40,000 In S’s Books DrEquipment360,000 CrCash360,000 DrDep45,000 CrAcc. Dep45,000

38 Illustration 3: Downstream Transfer of Fixed Assets Tan & Lee Chapter 4© CJE 2: Reverse tax on profit on sale DrDeferred tax asset (group’s BS)8,000 CrTax expense (P)8,000 $40,000 $20,00 0 $60,000 Acc. Dep. $40,000 NBV: $315,000 NBV: $280,000 Depreciation $360,000 $320,000 8 yrs Transfer No Transfer Dep exp: $45,000 Dep Exp: $40,000 Excess 5K

39 Illustration 3: Downstream Transfer of Fixed Assets Tan & Lee Chapter 4© CJE 3: Correct the over-depreciation on unrealized profit included in equipment DrAccumulated depreciation (S)5,000 CrDepreciation (S)5,000 Old depreciation40,000 New depreciation45,000 Over-depreciation5,000 CJE 4: Increase in tax arising from correction of over- depreciation DrTax expense (S)1,000 CrDeferred tax asset (group’s BS)1,000

40 Illustration 3: Downstream Transfer of Fixed Assets Tan & Lee Chapter 4© When the equipment is fully depreciated: CJE 5: Reinstate to original cost, accumulated depreciation and reverse profit DrEquipment (S)40,000 DrOpening RE (P)40,000 CrAccumulated depreciation (S)80,000 CJE 6 : Correction of past excess depreciation DrAccumulated depreciation (S)40,000 CrOpening RE (S)40,000

41 Illustration 3: Downstream Transfer of Fixed Assets Tan & Lee Chapter 4© CJE 7: Tax effects on unrealized profit on sale of fixed assets DrDeferred tax asset8,000 CrOpening RE (P)8,000 CJE 8: Tax effects on unrealized profit on sale of fixed assets DrOpening RE (S)8,000 CrDeferred tax asset8,000

42 Illustration 4: Upstream Transfer of Fixed Assets Assume illustration 3, except that S transfers to P 1 Jan 20X2 S sold equipment to P for $360,000 The original cost of equipment was $400,000 The remaining useful life is 8 years from date of transfer Net profit after tax of S for YE 31 Dec 20X2 : 500,000 YE 31 Dec 20X3 : 800,000 Assume a tax rate of 20% Original cost $400,000 Before TransferAfter Transfer Transfer price $360,000 40,000 Profit on sale Tan & Lee Chapter 442© 2009 Acc Dep. = $80,000 Net book value = $320,000

43 Illustration 4: Upstream Transfer of Fixed Assets Tan & Lee Chapter 4© CJE 1: Adjustment of unrealized profit DrEquipment (S)40,000 DrProfit on Sale (P)40,000 CrAccumulated depreciation (S)80, Dec 20X2 CJE 2: Reverse of tax on profit on sale DrDeferred tax asset (group’s BS) 8,000 CrTax expense (S)8,000

44 Illustration 4: Upstream Transfer of Fixed Assets Tan & Lee Chapter 4© CJE 3: Correct the over-depreciation on unrealized profit included in equipment DrAccumulated depreciation (P)5,000 CrDepreciation (P)5,000 Old depreciation40,000 New depreciation45,000 Over-depreciation5,000 CJE 4: Increase in tax arising from correction of over- depreciation DrTax expense (P)1,000 CrDeferred tax asset (group’s BS)1,000

45 Illustration 4: Upstream Transfer of Fixed Assets Tan & Lee Chapter 4© CJE 5: Allocation of current year profit DrIncome to NCI47,200 CrNCI47,200 Net profit after tax of S500,000 Less: Unrealized profit on sale (after-tax)(32,000) Add: Over-depreciation (after-tax)4,000 Adjusted net profit472,000 NCI’s share (10%)47,200 * Note: Upstream sale of FA will affect NCI’s share of profit as unrealized profit resides in S

46 Illustration 4: Upstream Transfer of Fixed Assets Tan & Lee Chapter 4© Dec 20X3 CJE 1: Adjustment of unrealized profit in prior year DrEquipment (P)40,000 DrOpening RE (S)36,000 DrNCI4,000 CrAccumulated depreciation (P)80,000 CJE 2: Reversal of tax on profit on sale in prior year DrDeferred tax asset (group’s BS)8,000 CrOpening RE (S)7,200 CrNCI800

47 Illustration 4: Upstream Transfer of Fixed Assets Tan & Lee Chapter 4© CJE 3: Correct the over-depreciation for prior and current year DrAccumulated depreciation (P)10,000 CrDepreciation (P)5,000 CrOpening RE (P)4,500 CrNCI500 CJE 4: Increase in tax arising from correction of over- depreciation in prior and current year DrTax expense (P)1,000 CrOpening RE (P)900 CrNCI100 CrDeferred tax asset (group’s BS)2,000

48 Illustration 4: Upstream Transfer of Fixed Assets Tan & Lee Chapter 4© CJE 5: Allocation of current year profit to NCI DrIncome to NCI80,400 CrNCI80,400 Net profit after tax of S800,000 Add: Over-depreciation (after-tax)4,000 Adjusted net profit804,000 NCI’s share (10%)80,400

49 Content Tan & Lee Chapter 4© Elimination of intragroup transactions and balances 2.Elimination of realized intragroup transactions 3.Elimination of intragroup balances 4.Adjustment of unrealized profit or loss arising from intercompany transfers 5.Impact on non-controlling interests arising from adjustments of unrealized profit or loss 6.Special considerations for intercompany transfers of fixed assets 7.Special accounting considerations when intragroup transfers are made at a loss

50 Transfers of Assets at a Loss Need to reassess whether the loss is indicative of impairment loss If it is indicative of impairment loss: –Unrealized loss is not adjusted out of the carrying amount of asset –Only reverse the sales and cost of sale (to the extent of the sales) for inventory –Only reverse the excess over cost and accumulated depreciation (to the extent of the sales) for FA If it is not indicative of impairment loss: –Same treatment as with unrealized profit –Unrealized loss is adjusted out of the carrying amount of asset –Realized only when the inventory is sold to 3 rd party or under/over- depreciation of FA is corrected Tan & Lee Chapter 4©

51 Illustration 5: Unrealized Loss Arising From Intragroup Transfers Parent transferred inventory to subsidiary during the year ended 31 Dec 20X6 The loss on transfer indicated an impairment loss on the inventory What is the consolidation journal entry? Tan & Lee Chapter 4© Transfer price$60,000 Original Cost$80,000 Gross loss($20,000) DrSales60,000 CrCost of Sales60,000 Eliminate the transfer of Inventory – no adjustment is made to remove the unrealized loss

52 Illustration 5: Unrealized Loss Arising From Intragroup Transfers Parent transferred fixed asset to subsidiary during the year ended 31 Dec 20X6 Transfer price $120,000 Original Cost $200,000 Acc. Dep ($ 50,000) NBV $150,000 Loss on transfer $ (30,000) The loss on transfer indicated an impairment loss on the fixed asset What is the consolidation journal entry? 52 DrFixed assets80,000 CrAccumulated depreciation80,000 Eliminate the transfer of fixed asset – loss of $30,000 is not eliminated Subsequent depreciation will take into account any revision in useful life of the impairment in value Tan & Lee Chapter 4© 2009

53 Conclusions Only transactions with 3 rd parties should be shown in consolidated financial statements Intra-group transactions and balances must be eliminated after reconciliation of balances Unrealized profit or loss in inventory or fixed assets must be adjusted Upstream transfers will impact NCI Tax effects on profit adjustments must be made Special considerations for transfers at a loss


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